And just like that, we have another year in the books! Without question, 2017 was a strong year for equities, both U.S. and International alike.
Each of the major Domestic Equity market indexes that we follow finished the year in double digit territory, with the Tech-heavy Nasdaq Composite (NASD) coming out on top with a gain of 28.24%, thanks in large part to the year-long rally we saw from the Technology sector. The Technology sector held on to the #1 rank in the Dynamic Asset Level Investing (DALI) U.S. sector rankings for the majority of the year, and did so by a wide margin. In fact, Technology never had less than 200 buy signals in its favor all year.
On the International front, Emerging Markets led the way in terms of performance, however, Developed Markets were not far behind. Overall, International Equities was the most-improved asset class as it gained a total of 91 buy signals in 2017 and moved up to the 2nd ranked position in early 2017 for the first time since mid-2015.
From a return standpoint, 2017 was a relatively average year for U.S. Fixed Income – on a total return basis, the Bloomberg Barclays US Aggregate Bond Index returned 3.54%, 48 basis points lower than its 10-year annualized return of 4.02%. What was not normal however was the movement in U.S. Treasury yields, as the yield curve flattened significantly during the year. The spreads between the 10-year and two-year and the 30-year and five-year Treasuries finished 2017 at 51 and 41 basis points, respectively, close to the narrowest these spreads have been in last decade.
Looking forward to 2018, we continue to overweight our portfolios toward both U.S. and International equities, as both asset classes maintain the top two rankings in DALI. It is worth mentioning that International Equities is only trailing Domestic Equities by a margin of 26 signals. Both the Technology and Financial sectors continue to exhibit leadership and we will continue to monitor the Consumer Cyclical sector to see if it can continue its recent improvement. Moving forward, we will underweight or avoid exposure to the lagging areas of the market, such as Commodities.
We are excited for a new year and we hope your new year is off to a good start!
Until next time, cheers!
Jim